ITA NO. 3017/Del/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI J.S. REDDY, ACCOUNTANT MEMBER
I.T.A. No.3017/DEL/2014
A.Y. : 2009-10
INDIA HABITAT CENTRE, DIRECTOR OF INCOME TAX
LODI ROAD, VS. (EXEMPTIONS),
NEW DELHI - 110003 PRATYAKASH KAR BHAVAN, E-2,
(PAN: AAATI0499M) BLOCK, 26TH FLOOR, DR.
SHYAMA PRASAD
MUKHERJEEMARG,
CIVIC CENTRE, JAWAHARLAL
NEHRU MARG,
NEW DELHI ­ 110 002
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Suresh Ananthraman, CA
Department by : Sh. R.S. Gill, CIT(DR)
Date of Hearing : 27-01-2015
Date of Order : 12-02-2015
ORDER
PER H.S. SIDHU : JM
This appeal by the Assesse is directed against the Order of the
Ld. Director of Income Tax (Exemptions), New Delhi dated
28.3.2014 passed u/s. 263 of the I.T. Act pertaining to assessment
year 2009-10 on the following grounds:-
"1. The order passed U/S 263 of the Act is without
jurisdiction.
2. The revisional order holding that the order dated
13.12.2011 passed u/s 143(3) of the Act is
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ITA NO. 3017/Del/2014
erroneous in as much as it is prejudicial to the
interest of the Revenue, is perverse and opposed to
evidences on record.
3. The Assessing Officer in the regular assessment
having thoroughly examined the applicability of the
principle of mutuality to the appellant, the revisional
order holding the same to be erroneous and not
based on application of mind by the Assessing
Officer is entirely wrong.
4. The Commissioner of Income-tax (Appeals) in the
appellate proceedings in respect to the assessment
order U/S 143(3) of the Act, having held that the
principle of mutuality is applicable to the appellant,
the revisional order passed u/s 263 of the Act is
without jurisdiction and is outside the mandates of
the provisions of Section 263 of the Act.
5. The findings of Director of Income Tax
(Exemptions) that the appellant "does not pass the
test of mutuality due to this specific arrangement of
ownership and dissolution club" will only amount
to substitution of views/opinion of Commissioner.
6. It is contended that the sum of
Rs.1,06,10,312/- is squarely exempt on account of
principle of Mutuality.
Your appellant craves leave to add, alter, amend or
withdraw any of the grounds of appeal at the time
of hearing."
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2. The facts relating to issue are that the assessee filed its return
of income as NIL on 30.9.2009. The case of the assesee was
selected for scrutiny, notice u/s. 143(2)/142(1) were issued. In
response to the same Authorised Representative of the assessee
appeared and filed the details of record as required by the AO from
time to time. In the original assessment dated 13.12.2011 passed
u/s. 143(3) of the I.T. Act, the AO has stated that the Assessee
Society is registered under section 12A of the Income Tax Act, 1961
dated 13.1.2009 and she has also produced the aims and objects of
the assessee-society in her assessment order dated 13.12.2011.
After considering all evidences produced by the assessee as
required by her, she completed the assessment u/s. 143(3) of the
I.T. Act on 13.12.2011 by making the addition of Rs. 44,40,871/-
i.e. income from other sources on account of bank interest by
holding that this amount not being covered under the `Principle of
Mutuality', subject to the tax under the normal provisions of the I.T.
Act. The ITAT has passed the said order by following the order of
the Hon'ble Jurisdictional High Court passed in the case of CIT vs.
Delhi Gymkhana Club reported in 339 ITR 525 (Del). Hon'ble Delhi
High Court has held that interest income will get protection of
Mutuality.
3. Aggrieved by the order dated 13.12.2011 passed by the
Assessing Officer, the assessee filed an appeal before the Ld. First
Appellate Authority who vide impugned order dated 14.5.2012
deleted the addition of Rs. 44,40,871/- by following the decision of
ITAT, Delhi Bench, dated 17.2.2012 in assessee's own case for the
asstt. year 2008-09 by holding that the interest income will also be
governed by `Principle of Mutuality' and the same will be chargeable
to tax.
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4. Ld. Director of Income Tax (Exemption), New Delhi vide his
order dated 28.3.2014 passed u/s. 263 of the I.T. Act examined the
records of the asstt. year 2009-10 and noticed that in the balance
sheet, Fixed Assets had been classified under two head ­ one under
the head of IHC Building Complex and other Assets (Schedule-3) at
Rs. 1,08,86,77,573/- and another under the head of Fixed Assets
(Schedule-4) at Rs. 28,04,914/-. The former assets do not belong to
the Centre instead these belong to various corporate members in
proportion. These assets are shown in the balance sheet of their
owner assesses and depreciation are charged by individual owner in
their books of accounts. Even surplus arising in the Income &
Expenditure Account of the Centre are taken to the IHC Building
Complex and other assets head. Ld. DIT(E) observed that less than
one percent of fixed assets are possessed by the Centre. And, if any
mutuality is claimed by the assessee in respect of income of the
trust, it can be claimed by the assessee in respect of income of the
trust and it can be claimed only in that ratio.
4.1 She further noticed that as per land allotment letter of Ministry
of Urban Development, in the event of dissolution the land allotted
and the assets created thereon will be transferred to an institution
having the similar aims and objects with the prior approval of the
government and failing that to Govt. on payment n compensation
determined by lessor in its absolute discretion. She stated that the
assessee does not have the control of the assets of society in the
case of its dissolution. Such society cannot be treated as mutual
society.
4.2 Lastly she held that AO gave the benefit of mutuality to the
assessee and charged only interest income instead of taxing the
whole excess of income over expenditure and this mistake resulted
in under assessment of income of Rs. 1,06,10,312/-.
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4.3 Ld. DIT(E) issued notice u/s. 263 of the I.T. Act to the assessee
on 21.2.2014 requiring to show cause as to why the assessment
order should not be set aside to be made afresh. In response to the
same, Authorised Representative of the assessee appeared on
10.3.2014 and filed reply. Ld. DIT(E) after going through the facts
of the case and submissions of the assesses and found that as per
letter of Ministry of Urban Development, the assessee does not have
control over the assets of the society. The only defence the
assessee has in his support is that the ownership of assets and
dissolution clause is as per the Scheme of the Government vide
which the Centre was created and was allotted land. Ld. DIT(E)
observed that this defence does not help the assessee as the
assessee does not pass the test of mutuality due to this typical
arrangement of ownership and dissolution clause. He further
observed that the Assessing Officer has not addressed this issue
while passing the assessment order. Non-application of mind to the
facts of the case makes the order erroneous and is prejudicial as
income of Rs 1,06,10,312/- has been held to be exempt on account
of principle of mutuality without proper examination of facts and
position of law. Finally she held that the order passed by the AO held
to be is erroneous in as much as it is prejudicial to the interests of
revenue and set aside the assessment order with the directions to
the AO to examine the issue after considering the Memorandum of
Association and Dissolution clause and further directed that the AO
shall frame the assessment order after calling and explaining
necessary details/ evidences and after giving the assessee due
opportunity of being heard vide impugned order dated 28.3.2014
passed under section 263 of the I.T. Act.
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ITA NO. 3017/Del/2014
5. Against the above order of the Ld. DIT(E) dated 28.3.2014
passed u/s. 263 of the I.T. Act, the assessee appealed before the
Tribunal.
6. Ld. Counsel of the assessee firstly argued that assessment
order is not erroneous. He draw our attention towards the Paper
Book-1 Pages 1 to 26 and stated that the assessee has filed its
return of income for the asstt. year 2009-10 disclosing all the
material alongwith the relevant information as well as the statement
of account of assessable income in the asstt. year in dispute which
is at Pages 25 to 26 of the Paper Book-1. He stated that assesee
has stated that in its statement that membership application,
process fee money on sale of Application Form and Annual
Subscription from Members are not income on the "Principle of
Mutuality" and the misc. receipts from HLRC are also government by
the `principle of mutuality'. Therefore, the surplus arising in such
circumstances, is not the income and is not includible in the total
income under the `principle of mutuality'. In support of his
contention, the assessee has also mentioned some decisions of
Hon'ble Supreme Court in the case of Chelmsford Club vs. CIT (243
ITR 89) [SC] and CIT vs. Bankipur Club Ltd. 226 ITR 97 (SC). He
also draw our attention toward the Paper Book-1 Pages 80-85 i.e.
the order sheet of the assessment proceedings and draw our
attention specially the pages 83-85 and stated that the AO has
asked the assessee's counsel about the applicability of `principle of
mutuality' and the assessee's counsel requested for more time to
answer the query raised by the AO vide order sheet entry dated
20.10.2011 and the AO adjourned the matter for 1.11.2011 and on
further various dates and lastly after considering the
documentary evidence filed by the assessee, the AO has discussed
the claim of `mutuality' in the assessment proceedings vide it order
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sheet entry dated 8.12.2011 which is at pages 85 of the Paper Book-
1 and finally passed the order u/s. 143(3) on 13.12.2011 accepting
the claim of `principle of mutuality'. He argued that the AO has
examined the issue of `principle of mutuality', after calling the
details and written submissions from the assessee which is at pages
86-87 and 98 to 100 of the Paper Book-1. Therefore, the AO has
considered the applicability of `principle of mutuality' in the order
under section 143(3) of the I.T. Act and can be seen from the pages
39 para 7 to pages 43 of the Paper Book. Ld. Counsel of the
assessee stated that the AO has thus made the detailed enquiries
and stated that the assessment is not erroneous at all. In support
of his arguments he cited the judgment of the Hon'ble Jurisdictional
High Court in the case of Geevee Enterprises vs. Addl. CIT 99 ITR
375 (Del) wherein the Hon'ble Delhi High Court has also taken note
of two well known judgments of Supreme Court in:
- Ram Piari Devi Sarogi vs. CIT 67 ITR 84 (SC)
- Tara Devi Agarwal vs. CIT 88 ITR 323 (SC)
6.1 Secondly, the Ld. Counsel of the assessee argued that the
assessment order dated 13.12.2011 passed u/s. 143(3) of the I.T.
Act and the AO has taxed interest earned from bank on the ground
that the `principle of mutuality' will not apply to such income. This
matter was carried in the Appeal to the CIT(A) who vide order dated
14.5.2012 allowed the Appeal of Assessee by respectfully following
the order of Hon'ble High Court of Delhi in the case of CIT vs. Delhi
Gymkhana Club [2011] 339 ITR 525 (Del) in which the Hon'ble High
Court has held that interest income will also get the protection of
mutuality. He draw our attention towards the order of Ld. CIT(A),
New Delhi dated 14.5.2012 passed in the assessee's own case for
the asstt. year 2009-10 which is placed at Pages 44-53 of the Paper
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Book filed by the assessee. He stated that Ld. CIT(A) Order is
dated 14.5.2012 and show cause notice issued by the Ld. DIT(E) u/s.
263 of the I.T. Act is dated 21.2.2014 which afterward is not
permissible under the law, because the doctrine of merger will apply
and the impugned order dated 28.3.2014 passed by the Ld. DIT(E),
New Delhi u/s. 263 of the I.T. Act is deserved to be cancelled. In
support of his contention, he relied upon the decisions in the CIT vs.
Nirma Chemical Works (P) Ltd., 300 ITR 67 (Guj); Smt. Sujata Grover
vs. Dy. CIT, 74 TTJ 347 (Del) and Marico Industries Ltd. vs. ACIT, 115
TTJ 497 (Born).
6.2 Thirdly, Ld. Counsel of the assessee has argued that Ld. DIT(E)
has issued a show cause notice dated 21.2.2014 u/s. 263 which is
at pages 54-56 of the Paper Book-1, on the basis of the Audit
Objection and without application of mind which is not permissible
under the law. He stated that Ld. DIT(E) has wrongly invoked the
provisions of section 263 of the I.T. Act. He stated that on this
ground the impugned order is deserve to be cancelled. In support of
his contention, he relied upon the reliance upon the decision in the
case of Sirpur Paper Mills Ltd. vs. CWT, 77 ITR 6 (SC); Jeewan Lal
(1929) Ltd. vs. Addl. CIT 108ITR 407 (Cal) and CIT vs. Sohana
Woollen Mills, 207 CTR 178 (P&H).
6.3 Lastly, he argued that when there are two view possible and
AO has taken one of the possible views, then the provisions of
section 263 of the Act will not apply. He also draw our attention
towards the various communications between the AO and the Audit
Party and the Ld. DIT(E) with regard to applicability of `principle of
mutuality'. These are placed at pages 101 to 111 of the assessee's
Paper Book-1.
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6.4 The Audit Officer raised the objection on 2.5.2012 on the
benefit of mutuality to the assessee and charging only interest
income instead of taxing the whole income and in response to the
audit objection, the AO vide his reply dated 18.12.2012 to the Sr.
Audit Officer regarding the `principle of mutuality' and supported the
assessment order dated 13.12.2011 by stating that all received of
money from members should go for the maintenance of super-
structure, the surplus arising after meeting the administrative
expenses has naturally be transferred to the account of the
Institution Members, because it belongs to the Members. He further
replied that it is the Institution Members who had contributed
towards the cost of the assessee or any service or some time deficit
will also be to the account of the members. This is a settled
principle behind the mutuality concept and lastly Dy. DIT(E) Circle-1,
New Delhi vide his reply dated 10.1.2014 to the Director of Income
Tax (E), Delhi. He has also stated that the receipt audit has not
accepted the reply sent by this office regarding dropping of the
audit objections, further action is required to be taken, although we
do not agree with the objection raised by the revenue audit party,
in view of legal as well as factual position of the case. Since the
audit objection pertains to asstt. year 2009-10 and the same was
completed in the F.Y. ending 31.3.2012, the most appropriated
action in our opinion is to reopen the case under section 263. Since
the order passed by the AO dated 13.12.2011 is prejudicial to the
interest of interest and it appeared to be fit case to be taken action
under section 263 of the I.T. Act for which limitation expires on
31.3.2014.
6.5 On the said observations, ld. Counsel of the assessee stated
that there are two views possible in the Department itself on the
issue in dispute and AO has taken one of the possible view, then the
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provision of section 263 of the I.T. Act will not apply. In support of
his contention, he cited the judgments in the case of Malabar
Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and CIT vs. Max India Ltd.
295 ITR 28 (SC).
6.6 Lastly, he stated that keeping in view of the written
submissions as well as the documentary evidence filed by him, the
impugned order may be cancelled and the Appeal filed by the
Assesee may be allowed.
7. Shri RS Gill, CIT(DR) appeared for the Department and relied
upon the order passed by the Ld. DIT(E) dated 28.3.2014 passed
under section 263 of the I.T. Act.
8. We have heard both the parties and perused the records
available with us, especially the order passed by the Revenue
Authority alongwith the documentary evidence filed by the
assessee's counsel as well as the provisions of law referred by the
Revenue Authority and the Ld. Counsel of the assessee. Ld. Counsel
for the assessee has argued three issues to nullify the impugned
order. He stated that the order passed by the AO is not erroneous
at all, because the AO has considered the applicability of `principle
of mutuality' in his order dated 13.12.2011 passed under section
143(3) of the I.T. Act. We have also perused the Pages 39 to 43 of
the Paper Book-1 especially the para 7 of the assessment order as
well as the detailed submissions filed by the AO during the
assessment proceedings with regard to applicability of `principle of
mutuality' which is placed at pages 86-97 and 98-100 of the Paper
Book. Ld. Counsel of the assessee also submitted before us the
noting of the AO written in the assessment proceedings which is
placed at pages 81 to 85 of the Paper Book more particularly at
pages 83 to 85 as well as the return filed by the assessee alongwith
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ITA NO. 3017/Del/2014
the statement of account which the assessee has enclosed at pages
1 to 26 of the Paper Book and more particularly pages 25 to 26 of
the Paper Book. After thoroughly examined the aforesaid
documentary evidence produced by the assessee in the shape of
Paper Book before us, we are of the considered view that the
arguments advanced by the Ld. Counsel of the assessee is very
much plausible and convincing, because the claim of the assessee
regarding the applicability of `principle of mutuality' in its return of
income has been filed by the assessee alongwith the return of
statement of account, meaning thereby the assessee has claimed
the applicability of `principle of mutuality' in its return of income.
The AO during the course of assessment proceedings has also
directed the assessee to explain the applicability of `principle of
mutuality' which we can see at the assessment proceedings noting
at page 81 to 85 of the Paper Book meaning thereby the issue of
`principle of mutuality' has been discussed in detail by the AO with
the assessee and the assessee has also filed its details before the
AO in the assessment proceedings with regard to the applicability of
`principle of mutuality' which we can say that at pages 86 to 97
and 98 to 100 of the Paper Book filed by the assessee. After
perusing the assessment order dated 13.12.2011 passed u/s. 143(3)
of the I.T. Act. We have seen that AO has considered the
applicability of `principle of mutuality' in the assessment order as
can be seen from the pages 39 to 43 of the Paper Book especially
the para 7 of the assessment order.
8.1 Keeping in view of the aforesaid discussion alongwith the
documentary evidence filed by the assessee as discussed above in
the arguments of the Ld. Counsel for the assessee and the
assessment order alongwith the impugned order, we are of the view
that the AO has made the detailed enquiries on the issue of
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`principle of mutuality' and passed the order dated 13.12.2011 u/s.
143(3) of the I.T. Act. Therefore, the assessment order dated
13.12.2011 passed u/s. 143(3) is not erroneous at all and the Ld.
DIT(E) has passed the impugned order dated 28.3.2014 contrary to
the law and facts on record, which is not sustainable in the eyes of
law. Our view is supported by the Geevee Enterprises vs. Addl. CIT
99 ITR 375 (Del);Ram Piari Devi Sarogi vs. CIT 67 ITR 84 (SC) and
Tara Devi Agarwal vs. CIT 88 ITR 323 (SC).
8.2 Secondly, as the argument by the Ld. Counsel of the assessee
that the AO has passed the order dated 13.12.2011 u/s. 143(3) of
the I.T. Act and has taxed the interest income earned from the
Bank on the ground that the `principle of mutuality' will not apply to
such income. Against this assessment order the assessee has filed
the Appeal before the Ld. CIT(A), who vide impugned order dated
14.5.2012 deleted the addition of Rs. 44,40,871/- and cancelled the
assessment order by respectfully following the order of the Hon'ble
Jurisdictional High court in the case of CIT vs. Delhi Gymkhana Club
339 ITR 525 (Del) and has held that interest income will also get the
protection of mutuality. As argued by the Ld. Counsel of the
assessee in the aforesaid para regarding the doctrine of merger, we
fully agree with the arguments advanced by him, because the
assessment order has been cancelled by the Ld. CIT(A) vide his
order dated 14.5.2012 by respectfully follow the order of the
Hon'ble High Court in the case of CIT vs. Gymkhana (Supra) and the
Ld. DIT(E) has issued the show cause notice u/s. 263 of the I.T. dated
21.2.2014 which is afterward. The doctrine of merger will apply and
the impugned order dated 21.2.2014 is not sustainable in the eyes
of law. Our view is supported by the CIT vs. Nirma Chemical Works
(P) Ltd., 300 ITR 67 (Guj); Smt. Sujata Grover vs. Dy. CIT, 74 TTJ 347
(Del) and Marico Industries Ltd. vs. ACIT, 115 TTJ 497 (Born).
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8.3 The third argument advanced by the Ld. Counsel of the
assessee is about the about the audit objection and he stated that
the Ld. DIT(E) has issued the show cause notice to the assessee u/s.
263 of the I.T. Act on the basis of audit objection and without
application of mind which is not sustainable in the eyes of law. We
have heard the Ld. Counsel of the assessee and perused the
documentary evidence produced before him on the issue of audit
objection especially the pages 100-111 of the Paper Book which are
the various communications which have been taken by the AO and
the Audit Party and the Ld. DIT(E) with regard to the applicability of
the `principle of mutuality'. We find that the Audit Officer raised
the objection on 2.5.2012 on the benefit of mutuality to the
assessee and charging only interest income instead of taxing the
whole income and in response to the audit objection, the AO vide his
reply dated 18.12.2012 to the Sr. Audit Officer regarding the
`principle of mutuality' and supported the assessment order dated
13.12.2011 by stating that all received of money from members
should go for the maintenance of super-structure, the surplus arising
after meeting the administrative expenses has naturally be
transferred to the account of the Institution Members, because it
belongs to the Members. He further replied that it is the Institution
Members who had contributed towards the cost of the assessee or
any service or some time deficit will also be to the account of the
members. This is a settled principle behind the mutuality concept
and lastly Dy. DIT(E) Circle-1, New Delhi vide his reply dated
10.1.2014 to the Director of Income Tax (E), Delhi. The reply to the
DIT(E) establish that the revenue authority itself supported the
order of the AO dated 13.1.22011 passed u/s. 143(3) of the I.T. Act.
In our considered opinion, when two views are possible and the AO
has taken one of the possible view, then the provisions of section
263 of the I.T. Act will not apply. Therefore, in the present case the
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same facts and circumstances are applicable. We are of the view
that ld. DIT(E) has passed the impugned order by taking his own
view which is contrary to the various decision rendered by the
Hon'ble Supreme Court of India in the case of Malabar Industrial Co.
Ltd. vs. CIT 243 ITR 83 (SC) and CIT vs. Max India Ltd. 295 ITR 28
(SC).
9. Keeping in view of the aforesaid facts and circumstances as
explained above, we are of the considered view that Ld. DIT(E)
passed the impugned order dated 28.3.2014 contrary to the facts
and circumstances of the present case, as discussed above which is
not sustainable in the eyes of law, hence, we cancel the order dated
28.3.2014 passed by the Ld. DIT(E) u/s. 263 of the I.T. Act by
accepting the appeal filed by the assessee.
10. In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 12/2/2015.
Sd/- Sd/-
[J.S. REDDY] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 12/2/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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